Halborn Logo

// Blog

Blockchain Explained

What is DePIN (Decentralized Physical Infrastructure Networks)?


Rob Behnke

April 4th, 2024

Decentralized Physical Infrastructure Networks (DePINs) bridge physical infrastructure with blockchain technology to build and operate decentralized systems.

According to CoinGecko, the DePIN market cap is over $32 billion (at the time of writing). Moreover, it has surpassed the market cap of Decentralized Exchange (DEX) tokens. 

In the last year, DePIN - and the demand for DePIN coins - has been gaining popularity and so, in this article, we will explore what DePIN is in crypto and how it works.

What is a DePIN in Crypto?

DePINs are peer-to-peer (P2P) networks where individuals contribute physical infrastructure resources like data storage, wireless connectivity, sensors, or even energy grids. In return, they earn rewards as per the protocol’s incentive mechanism.

The concept of using incentives and game theory to turn the flywheel of a system for long-term viability is not new to Web3. DePINs, however, merge the game theory associated with blockchains with practical, real-world applications that appeal to the masses.

Vitalik on DePIN

Source: https://warpcast.com/vitalik.eth/0x820c1567 

In a traditional setting, a network provider, like a cloud storage company, pays stakeholders to build and maintain the infrastructure. There are obvious downsides to this like high entry barriers for new entrepreneurs, and the threat of centralization.

Decentralized Physical Infrastructure Networks turn this around by offloading the aspect of building and maintaining the entire infrastructure. The concept is that, with enough participants, the entire network would be self-sustained like its own economic cocoon.

Simply put, DePINs thrive in the web of connectivity by leveraging the core principles of distributed networks to address the challenges of physical infrastructure management.

The value of a network often increases as more people participate. As incentivized individuals share their resources, the overall infrastructure becomes more extensive and valuable. This incentivizes further participation and fuels the network effect.

Types of DePINs: PRNs and DRNs

Messari’s Crypto Theses 2024 report puts DePINs into two buckets:

  1. Physical Resource Networks (PRNs)

  2. Digital Resource Networks (DRNs)

  1. Physical Resource Networks (PRNs)

PRNs provide crypto incentives to participants for deploying location-dependent hardware. This hardware also acts as a resource to supply network connectivity, energy, or geospatial data. 

For example, consider the case of wind energy. Here, wind is a natural resource that is only available in fixed locations, and the energy produced is distributed to the local residents.

  1. Digital Resource Networks (DRNs)

DRNs, on the other hand, are location-independent, unlike PRNs. Therefore, you can use its services without any geographical barriers.

Digital resources like storage facilities, computing, and bandwidth fall under this category. Simply put, with DRNs, you can benefit from services available across the world while staying at home.

How Do DePINs Work?

There are four essential parts to how DePINs work: 

  1. Blockchain Architecture: Blockchain technology is the backbone of DePIN. As a result, the project relies on its architecture, which consists of smart contracts to execute preset rules, charge fees, and provide rewards.

  2. Physical Infrastructure Network: This infrastructure consists of physical components that help to transmit data, resources, or information within a network. The most commonly used components include hardware devices like switches, routers, and networking equipment.

  3. Token Rewards: The person or entity that provides services receives crypto tokens as an incentive. Participants also receive tokens for their engagement, and the reward varies based on the project.

  4. Off-Chain Network: This network is associated with the data transactions that take place outside the main blockchain network. Here, users buy required resources like computing power, data storage, and connectivity from external service providers. 

These four “cogs in the machine” help turn the DePIN flywheel.

What is the DePIN Flywheel?

The DePIN flywheel is essentially a self-sustaining cycle that grows the network’s users and contributors. Here’s a look at how it works.

  1. Increased Usage: As more people use the DePIN network, the demand for its services grows. This could be anything from needing more storage space to utilizing extra computing power.

  2. Token Price Rise: With increased demand, the value of the DePIN token naturally increases. This happens through mechanisms like token burns (removing tokens from circulation), buybacks (the network itself repurchasing tokens), or because users want more tokens to operate the network profitably.

  3. Contributor Incentive: The rising token value makes it more attractive for people to contribute resources to the network. They're earning tokens that are now worth more. This could involve individuals sharing their computer storage or companies offering data center capacity.

  4. Network Expansion: As more resources are contributed, the DePIN network expands its capacity. This allows it to handle more users and offer a wider range of services.

  5. Investor Interest: The network's growth and rising token value attract investors. This brings additional funding and support, further accelerating the network's development.

DePIN Flywheel

Image source: https://messari.io/report-pdf/f125632168e9a04e016fe43bc551f412389eda4f.pdf 

Benefits of DePINs

DePIN projects, like Filecoin and Storj, position themselves as protocols that solve what the traditional infrastructure could not:

  • Accessibility

  • Resource-efficiency

  • Affordability

  • Rapid scalability

  • Self-sustainability

Accessibility: DePINs Are Permissionless

DePINs are typically built on public blockchains or use DAGs (directed acyclic graphs) across a network of decentralized nodes.

This distributed nature of DePINs can help to bring essential infrastructure to more users where traditional solutions are unavailable.

Resource-Efficiency: DePINs Use Minimal Resources

DePINs promote sharing underutilized resources within a community. This can include spare storage space, computing power, or even data center capacity.

By maximizing resource utilization, DePINs contribute to a more sustainable and cost-effective approach.

Affordability: DePINs Are Crowdsourced

DePINs are built through crowdsourced funds and effort. They bypass bureaucratic hurdles and distribute costs across participants, leading to faster and more affordable infrastructure development.

Generally, people who want to use the network’s products and services can pay for only what they use.

Rapid Scalability: DePINs Are Borderless

DePINs’ decentralized nature means communities and not governments own and operate them. This allows the network to rapidly expand into new jurisdictions without much bureaucratic intervention.

Self-Sustainability: DePINs Are Their Own Ecosystems

Through token incentives and efficient resource allocation, DePIN networks can generate enough income to maintain and expand their infrastructure without constant external investment. This creates a more resilient and independent infrastructure system.

Top DePIN Crypto Projects

Currently, the top DePIN projects by market cap include:

  1. Filecoin (FIL)

Filecoin is currently the largest DePIN project by market capitalization. Developed by Protocol Labs, this project provides decentralized cloud storage solutions. 

Filecoin allows users to buy and sell digital storage spaces in a secure, transparent, and efficient manner. Anyone from their network can become a storage provider. FIL is the native currency of the Filecoin ecosystem. You can earn FIL tokens by renting your storage space.

For security, Filecoin uses the Proof of Spacetime (PoSt) and Proof of Replication (PoRep). These mechanisms ensure the security of stored files.

  1. Render Network (RNDR)

Render Network is a distributed rendering platform that allows the use of required GPU power. This project, established in 2017, helps users process high-end 3D content creation. 

It collects GPU resources from its ecosystem and distributes them across the network. The GPU providers receive a Render token (RNDR) in return for their supply. Cost efficiency and low power consumption enable Render Network to be a building block for upcoming digital products in the metaverse. 

  1. Theta Network (THETA)

Theta Network consists of a video delivery network built using blockchain technology. Moreover, their platform uses available spare computing resources and bandwidth to function as an efficient video streaming ecosystem.

The reward mechanism of this project plays a crucial role in the wide adoption of this blockchain-based streaming platform. Here, users are rewarded to consume content and share unused network resources. THETA token is the governance and staking token of the Theta Network.

Security Aspects of DePIN 

In the case of the traditional centralized system, a single security breach could stop total operation. On the other hand, the involvement of blockchain helps DePINs to lower the impact of network-based hacks and attacks. 

However, this does not mean DePINs are totally secure. When it comes to security, we need to consider some important aspects, such as:

  1. Security of Physical Elements

The security of DePIN depends largely on individual hardware and other elements. Any attack on such components results in data theft, network disruption, and other serious safety issues.

  1. Social Engineering Vulnerability

Engaging community participation leads to a high possibility for social engineering attacks. Attackers can influence the decision-making process in their favor and manipulate the governance system or even expose the identities of participating individuals against their consent.

  1. Integration Security Challenges

DePIN systems that use centralized infrastructure are prone to cyber-attacks. Cybercriminals can attack individual nodes and exploit security vulnerabilities in governance systems. To avoid such issues, service providers must implement a secure communication protocol for safer operation. 

How to Ensure DePINs Are Secure?

DePINs are only as secure as the infrastructure and developers that make them up. Securing DePINs involves a multi-layered approach, considering both the technical aspects of the network and the actions you take as an individual user. 

Here's a breakdown of how to contribute to a secure DePIN environment:

DePIN Security From a Network Perspective

  • Strong Encryption: DePIN developers should ensure robust encryption protocols are implemented to safeguard data transmitted across the network. This makes intercepted data unreadable to unauthorized parties.

  • Immutable Records: Leverage the power of blockchain technology to maintain tamper-proof records of transactions and data. This promotes data integrity and transparency within the DePIN network.

  • Smart Contract Audits: Regular audits of smart contracts, the self-executing code on the DePIN network, are crucial. These audits help identify and fix vulnerabilities that hackers might exploit.

  • Community Governance: Collaborative decision-making models within the DePIN community can help address security concerns and implement necessary upgrades.

DePIN Security As a User

  • Secure Login: Always use strong passwords and multi-factor authentication (MFA) when accessing your DePIN accounts. This adds an extra layer of security to prevent unauthorized access.

  • Beware of Social Engineering: DePINs are susceptible to social engineering attacks. Be cautious of unsolicited messages, emails, or calls requesting sensitive information or asking you to approve transactions you don't understand.

  • Stay Informed: Keep yourself updated on emerging security threats specific to DePINs. This allows you to adapt your security practices and stay ahead of potential risks.

  • Report Issues: If you encounter any suspicious activity or potential vulnerabilities within the DePIN network, report them to the developers or relevant authorities.

Final Thoughts

DePINs present an alternative solution to centralized subscription-based networks like cloud storage and cloud computing. The market cap of TradFi companies, like Microsoft and Amazon,  providing these services cumulatively exceeds $5 trillion. In comparison, the crypto DePIN infrastructure has a long way to go.

DePIN is not just a buzzword; it has enormous capability to plan, build, and operate in an efficient and scalable way. Moreover, many untapped physical infrastructures will benefit from this technological integration. Considering all these positives, DePIN's future looks bright.